With the pandemic still afloat and feelings of tension and uncertainty high, many people looking to buy or sell try to anticipate the next housing market crash. Millions of people across North America are now unemployed or laid off, bringing the unemployment rate to a high. It is not wrong to anticipate that unemployment and economic downturn will soon impact the real estate industry and the housing market. However, in every crisis there are opportunities and potential homebuyers could use this time of uncertainty to prepare for their next move.
Read on to discover what potential homebuyers can do to prepare for a possible real estate crisis in 2021, from improving credit scores to reducing expenses, and saving for a down payment. There are several ways in which we can prepare for a crash. Sometimes a crisis is the best time for opportunity, such as taking advantage of historically low mortgage rates.
Put your efforts towards improving your credit score to qualify for a suitable mortgage when the time is right.
When it comes to getting a mortgage with reasonable rates, having a good credit score is crucial. Your credit score affects your interest rates and how much lenders ask you to put down for a down payment. Thankfully, if you do not have excellent credit, there are several ways to improve it!
- Pay Your Bills On Time: This one might be obvious; however, you’d be surprised to learn about how many people do not pay their bills on time. It’s not the act of paying your bills promptly that improves your credit score; rather, it’s the absence of late payments that do. If you are forgetful, consider setting up alerts on your phone that remind you to pay your bills on time. If you cannot afford to pay your bills in full, make the minimum payment when it is due.
- Stay Well Below Your Limit: Although you may have a credit card with a substantial limit, it does not mean that you have to max it out every month. Your credit utilization significantly impacts your credit score. As a rule of thumb, you should keep your credit balance at 30% of your monthly credit limit.
- Limit Your Total Number of Credit Cards: Like paying your bills on time, this tip is quite simple, only have a few credit cards that you genuinely need.
- Recognize the Importance of Credit History: Your credit age is essential, especially when you do not have a lot of credit history. The older your credit age, the better you appear to lenders. Keep old cards and credit lines that you do not use anymore to demonstrate a lengthy credit history.
- Know Your Credit Score and Dispute Inaccuracies: You can check your credit score once a year without harming it. It’s important to review your score to see if anything is damaging it or there are any inaccuracies you can dispute to improve your credit.
Reduce Your Debt To Income Ratio (DTI)
DTI is a measurement of the amount of debt you have in comparison to your overall income. Lenders use it to measure your ability to repay them; therefore, having a good DTI is significantly essential when applying for a mortgage. Here are some basic tips to lower your DTI.
- Reduce Your Monthly Recurring Debt: It can be incredibly challenging to reduce your monthly recurring debt. However, if you place a constant effort on reducing your monthly spending on non-essentials, you can use the money you save towards paying off your debt. By not spending money on expensive shoes, Starbucks coffee, you are also avoiding going into further debt.
- Increase Your Monthly Income: You can increase your monthly salary in various ways, such as finding a second job or a side hustle. This can be a part-time job as a cashier or working as an Uber driver. If you have a particular skill, you can be a freelancer on websites like Upwork or Fiver to earn extra cash such as Teaching English, Design, Copywriting. If you do not want to get a second job, you can ask for more hours at your job or do some overtime. You can also negotiate your salary or ask for a raise.
Increase Savings for a Down Payment
If you are thinking about buying a home, it’s time to start saving for a down payment. That way, you can take advantage of the possibility of low mortgage rates, or if something happens like you lose your job, you still have money set aside to make your homeownership dreams possible. To increase savings for a down payment, you can do several things!
- Save on Rent or a Car: If you have two cars or a car that you do not use, you can consider selling it. Not having a vehicle can save you a lot of money per year. There are several other transportation options available such as public transit, carpooling, or cycling. If you must keep your car or cars, consider saving on rent by downsizing or moving to a cheaper neighborhood. Remember, you are saving for your dream home, so your apartment right now can have the essentials.
- Cut Down on Expenses: There are always areas where we can cut back to put more money into our savings. Derive a budget and work with it. Evaluate what is necessary and what isn’t. Things like an expensive gym membership, eating out, fancy clothes, and subscriptions are luxuries that can add up monthly.
- Put Money in a Savings or Investment Account: Consider putting your money in a savings account or an investment account! You can set up automatic transfers that take from your pay every two weeks. You can also add a lump sum payment like tax returns into your savings.
- If You Can, Get a Side Hustle: If you are looking to increase your savings by boosting your income, pick up a side gig. It doesn’t have to be a tedious job. It can be a job based on something you genuinely enjoy. If you like to exercise, you can walk dogs, personal train, or become a referee. All of the money you earn can be used for your down payment.
- Pay off Debt: It’s hard to save money when all of your income is going towards paying off debt. Consider paying your highest interest debt first and work your way towards the rest.
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